Too Much Bullishness A Bad Omen?

There’s chatter on the trading floors that a dangerous investor complacency is finally setting in following a stretch where the Dow Jones Industrial Average rose 14 of 17 sessions and climbed to an 18-month high.

The percentage of bullish investors climbed to 48.9 percent today from 46.1 percent the week before, according to a widely followed survey of financial newsletter writers by research firm Investors Intelligence.

This is the highest since the 52 percent reading on Jan. 19, the day that marked the previous 2010 high for the Dow. The average went on to fall more than seven percent before bottoming in early February.

“It is a warning that the risk/reward is getting more dangerous,” said Peter Boockvar, equity strategist at Miller Tabak. Boockvar noted, however, that that this survey is not a perfect timing tool.

The reason why traders follow these sentiment measures as a contrarian indicator is because they figure that if everyone becomes bullish, there’s no one left to buy and propel the market higher. Then, they say, a correction will follow.

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